MARKET COMMENT Mortgage bond prices got crushed last week, which pushed interest rates considerably higher. Steady selling pressure throughout the week was the norm. Greece approved austerity measures in an effort to secure additional bailout funds. This resulted in a reversal of the flight to quality buying of US debt seen in recent weeks past. There were a few Treasury auctions that had weak foreign demand that caused additional selling across most of the bond
market. Unfortunately strong stocks also made it difficult for rates to improve. Mortgage bonds ended the week worse by about 1 and 3/8 of a discount point.
The employment report Friday will be the most important release this week. Expect market conditions to remain volatile.
- Factory Orders; July 5; Consensus Estimate Down 0.8%; Important. A measure of manufacturing sector strength. A larger decrease may lead to lower rates.
- ADP Employment; July 7; Consensus Estimate 35k; Important. An indication of employment. Weakness may bring lower rates.
- Weekly Jobless Claims; July 7; Consensus Estimate 405k; Important. An indication of employment. Higher claims may result in lower rates.
- Employment; July 8; Consensus Estimate 9.1%, +80k; Very important. An increase in unemployment or weakness in payrolls may bring lower rates.
- Consumer Credit; July 8; Consensus Estimate $6.4b; Low importance. A significantly large increase may lead to lower mortgage interest rates.
FACTORY ORDERS Factory orders data is a monthly report released by the US Census Bureau. The release is officially referred to as The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories, and Orders.
The manufacturing sector is a major component of the economy. Investors use the factory orders report to attempt to determine the direction of the economy in the future. Orders are generally believed to be a precursor to activity in the manufacturing sector because manufacturing typically has an order before considering an increase in production. Conversely, a decrease in orders eventually causes production to scale back; otherwise, the manufacturer accumulates inventories, which must be financed.
Total factory orders break down to approximately 55% durable and 45% non-durable. Durable goods are items such as refrigerators, cars, and aircraft. Non-durables are items such as cigarettes, candy, and soap. The report is often dismissed due to the timing of the release. Durable goods orders are typically reported a week earlier making a portion of the factory orders data “old news.” While some analysts dismiss the value of the factory orders data others point out the fact that the report provides a more complete picture than the initial durable goods release. Revisions to initial data along with non-durable figures are factored in providing a more accurate look at the condition of the manufacturing sector.
If the factory orders data shows a significant increase mortgage interest rates could be pressured higher. However, weakness in the data could help rates improve.
Source: Todd Kabel, F&M Mortgage; Blog distribution provided by Kenneth Bargers and Bargers Solutions, a proud member of Pilkerton Realtors, residential real estate services located in Nashville, Tennessee